Infrastructure is a critical part of the Government's plan to stimulate the economy as we seek to recover as a nation from the COVID-19 pandemic. Today, the Government confirmed that construction could restart as the country moves back to Alert Level Three. That will be a significant step forward for the sector.
Over the last two weeks, the Government has made a series of announcements that together provide an overall package to kick-start the infrastructure construction sector and minimise the economic impact of COVID-19. The package would be in addition to the Government's existing infrastructure agenda, which included a $12 billion New Zealand Upgrade Programme announced in late 2019, and through the Provincial Growth Fund.
There are two key strands to the Government's package, being:
Below we discuss each of these strands, their role in the fast-track process, and some of the key considerations.
Mobilising the construction industry on fast-track projects
A critical part of the economic recovery will involve mobilising a range of infrastructure projects to get the construction sector firing. Given the challenges that the sector currently faces, a coordinated approach will be critical.
Earlier this month, pursuant to a Government request, the Construction Sector Accord, a collaboration between construction sector leaders across Government and industry, released a COVID-19: Response Plan ("Response Plan") to support the sector during and after COVID-19. The key focus of the Response Plan across all phases of recovery are:
maintaining and accelerating the pipeline of work and removing barriers to restarting works;
keeping cash flow in the sector;
ensuring a fair and consistent approach to how contractor costs are covered and/or reimbursed during the shutdown;
additional financial and other support that could be available for employees and business owners; and
new health and safety guidelines to ensure the safe return to work.
At the same time, Crown Infrastructure Partners (CIP) has taken a lead role in coordinating the Government's response. It has been calling for industry nominations of "shovel ready" projects for consideration. The aim is to create a pipeline of projects to commence or re-commence as soon as the applicable Alert Level allows construction to take place. Nominations closed on 14 April, with a final list of CIP supported projects anticipated to be provided to the Government in early May. The type and level of Government support for those projects that make the final list will vary, although there is a key focus on funding and financing support. The early indications of projects that have been submitted to CIP include a large number of projects that are mid-construction, including projects such as Auckland's City Rail Link.
Along with the traditional linear infrastructure such as roads, rail and three waters infrastructure, CIP has also called for vertical projects such as schools, hospitals and other buildings. Providing a range of vertical projects is likely to be a key challenge, particularly given the additional health and safety challenges that those types of projects may face in terms of physical distancing, while New Zealand remains under varying COVID-19 related Alert Levels.
CIP has made clear that it intends to provide the Government with projects spread throughout the country (with a geographic spread roughly matching up to geographic GDP contribution) and to include both linear and vertical projects. Most projects sought are worth over $10 million, but smaller projects are being considered if they can demonstrate direct and immediate benefits to regional economies. Where possible, emphasis will be placed on "future proofing" infrastructure projects rather than maintaining the status quo.
A further workstream, that falls within the ambit of the Response Plan overseen by the Construction Sector Accord Steering Group, relates to providing flexibility in Government procurement processes, in order to expedite the awarding of bids for infrastructure projects. One option that has been proposed is the potential to move away from generally principal favourable design build contracts, towards greater use of an ECI procurement method, which allows for collaboration, optimisation of design and an early understanding of the project thereby resulting in reduced disputes, scheduled completion and cost savings. However, given the range of projects being put forward for fast-track, there is no "one size fits all" approach when it comes to procurement methods and contracting models.
It is unclear whether this workstream will apply to Government procurement only, or whether it will apply more broadly. However, given the likely focus on Government infrastructure projects, it is likely to have a significant impact on the procurement market either way.
In addition, the Ministry for the Environment is currently developing options to simplify the consenting process for "shovel ready" infrastructure projects.
The Government's stated intention is to provide a fast-track consenting process for infrastructure and development projects, building on the lessons learned from rebuild projects following both the Christchurch and Kaikoura earthquakes. The specific mechanics are still being developed, and we understand the intention is that legislation will be passed within a month.
A key consideration will be balancing the purported driver of the legislation to streamline the consenting process with the broader Government agenda on matters such as climate change, "green infrastructure", fresh water reform, and iwi participation. A number of groups have been vocal over the last week in cautioning the Government against opening the floodgates to infrastructure developments, without appropriate environmental consideration. The reality is that major infrastructural projects do have environmental impacts. If the Government is serious about using this time to get infrastructure projects out of the ground, compromises will need to be made.
Infrastructure investment has historically proven to be critical in economic recovery, but it needs to be invested smartly. The work underway now in both preparing a streamlined consenting process and identifying the priority fast-track projects is necessary to ensure the best possible return on public investment. Whether this can be achieved with minimal compromise to the Government's broader agenda remains to be seen.